A monetary mechanism for sharing capital: Diamond and Dybvig meet Kiyotaki and Wright

  • Ricardo O. de Cavalcanti
Part of the Studies in Economic Theory book series (ECON.THEORY, volume 24)


A model is presented in which banks update public records, accept deposits of fiat money and intermediate capital. I show that inside money is more liquid than outside money, increasing the turnover rates of idle capital. The model offers a simple explanation for the dual role of financial institutions: Banks are monitored and can issue nominal assets upon request, which helps them to transfer capital in sufficiently high rates and to also become intermediaries. The model shares some features with those of Diamond and Dybvig [5], and Kiyotaki and Wright [7].


Bank Sector Participation Constraint Sharing Capital Bank Capital Money Holding 
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Copyright information

© Springer-Verlag Berlin Heidelberg 2006

Authors and Affiliations

  • Ricardo O. de Cavalcanti
    • 1
  1. 1.EPGE, Getulio Vargas Foundation, Praia de BotafogoRio de JaneiroBrazil

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